Tuesday, October 6, 2009

Bookkeeping: Adding Some Short Exposure

As we said in the weekend summary, we wanted to get some of our hedges back on once the market bounced to some degree; did not expect it to happen so soon but here we are. Overall game plan here is to get more balanced (we were as high as 4:1 long v short this morning - actually 5:1 considering some SPY calls) the higher we go towards S&P 1080, Then if required - we'll bail on the short side if the S&P 500 surges through that level as new highs would beckon the path to S&P 2500, 3500, 4500? (in nominal terms). All that is required for that wonderful scenario to happen is some more dismembering of the US dollar.

I am looking for some candidates so here are some we added today (p.s. the only profits I took today were the SPY Calls I just dumped which had been added yesterday morning anticipating some sort of bounce - did not expect *this* furious type of bouncing)

(1) Shorted Analog Devices (ADI) in low $26.80s with about 2.2% exposure; will stop out over $27.50 (would be about a 3% loss)

(2) Added back some portion of the Bunge (BG) we covered Friday. Short was near $62, same idea as the original short; will stop out over $64 (would be a 3% loss). Added about 1.5% exposure there.

I'm looking for a few similar technical set ups in other names but will go slow unless something screams at me - want to add more short exposure closer to S&P 1070 rather than 1050 if we can. I've given up shorting stocks on fundamental reasons for now since the market could care less. Stocks at 60-100x forward estimates are still being bid up in joy and glory.

While I think the market is now complete tomfoolery it's been a very profitable 4 days. We're now approximately +60% YTD vs 53% a week ago at this time.

EDIT 3 PM: I should add "big picture" if the S&P 500 falls below 1040, I'll also be looking to add some more short exposure as that would mean another break below the 20 day moving average. Right here at S&P 1050 is sort of limbo area, want to see where the market is taken next before the next set of moves. Everything I wrote above assumes the next move is up, because... well that is pretty much all we do nowadays.

Short Bunge, Analog Devices in fund; no personal position

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